WASHINGTON – With home foreclosures skyrocketing, the House on Thursday voted to crack down on mortgage lenders by forcing them to get licenses, making them responsible for discovering whether borrowers can really repay and fining them for steering people toward risky subprime loans.
The measures are designed to keep more people from sinking into the current mortgage crisis, where prospective homeowners with shaky credit got mortgages with low interest rates only to see the rates rise and bring monthly mortgages up to prices they cannot afford.
More than 2 million adjustable rate mortgages are scheduled to reset by the end of 2008.
Many American homeowners are expected to go spiraling into debt, with the number of homes involved in foreclosure proceedings nationwide almost doubling in the third quarter of this year when compared with 2006, according to RealtyTrac Inc.
“What we have today is a bill that cannot undo what happened, but makes it much less likely it will happen in the future,” said Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee.
But Republicans and the White House warned that congressional meddling with mortgage markets could make things even worse. Many Republicans argued the bill would make it harder for borrowers to refinance loans due to reset at higher interest rates, and make it almost impossible for poor people to get loans to buy a house.
The bill passed 291-127. It now goes to the Senate, where a similar bill has been stalled for weeks.
Included in the House legislation are provisions that would:
•Ban lenders from making loans that borrowers don’t have the ability to repay;
•Prohibit lenders from steering homeowners into refinanced mortgages that don’t provide any benefit and create fines of triple the broker fee and costs;
•Make Wall Street banks that package mortgage securities into investments liable for violations of lending laws;
•Prohibit excessive fees for payoff information or late payments, the financing of points and fees and practices that increase the risk of foreclosure like balloon payments and encouraging borrowers to default; and
•Create a nationwide licensing system for mortgage brokers and bank loan officers.